During 2021, Libya Company is the defendant in a breach of patent lawsuit. The lawyers believed there is an 80% chance that the court will not dismiss the case and the entity will incur outflow of benefits. If the court rules in favor of the claimant, the lawyers believed that there is a 60% chance that the entity will be required to pay damages of P2,000,000 and a 40% chance that the entity will be required to pay damages of P1,000,000. Other amounts of damages are unlikely. There is no indication that the claimant will settle out of court. The court is expected to rule in late December 2022. An 8% risk adjustment factor to the cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. The appropriate discount rate is 12%. The PV of 1 at 12% for one period is .89. 1. What amount should be recognized as undiscounted cash flows for the provision? a. 1,382,400 b. 1,280,000 c. 1,036,800 d. 1,620,000 : What amount should be reported as provision for lawsuit on December 31, 2021? a. 1,139,200 b. 1,335,000 c. 1,230,336 d. 922,752

During 2021, Libya Company is the defendant in a breach of patent lawsuit. The lawyers believed there is an 80% chance that the court will not dismiss the case and the entity will incur outflow of benefits. If the court rules in favor of the claimant, the lawyers believed that there is a 60% chance that the entity will be required to pay damages of P2,000,000 and a 40% chance that the entity will be required to pay damages of P1,000,000. Other amounts of damages are unlikely. There is no indication that the claimant will settle out of court. The court is expected to rule in late December 2022. An 8% risk adjustment factor to the cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. The appropriate discount rate is 12%. The PV of 1 at 12% for one period is .89. 1. What amount should be recognized as undiscounted cash flows for the provision? a. 1,382,400 b. 1,280,000 c. 1,036,800 d. 1,620,000 : What amount should be reported as provision for lawsuit on December 31, 2021? a. 1,139,200 b. 1,335,000 c. 1,230,336 d. 922,752

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter18: Comparative Forms Of Doing Business

Section: Chapter Questions

Problem 4P

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